Revenue is the amount of money a firm receives from selling its goods/services

• Total revenue = price x quantity

• The total revenue rule states that in order to maximise revenue, firms should increase the price of products that are inelastic in demand & decrease prices on products that are elastic in demand 

• This can be illustrated using a demand curve

Diagram Analysis

• The demand curve is very elastic in this market

• When a good/service is price elastic in demand, there is a greater than proportional increase in the quantity demanded to a decrease in price

Diagram -2

Diagram Analysis

• The demand curve is very inelastic in this market

• When a good/service is price inelastic in demand, there is a smaller than proportional decrease in the quantity demanded to an increase in price